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TMI Blog2024 (1) TMI 997X X X X Extracts X X X X X X X X Extracts X X X X ..... tic clients while applying CUP method as directed in the above referred decision in the case of the assesse itself. Therefore, this ground of appeal of the assessee is allowed for statistical purposes. No adjustment of marketing cost while applying CUP method not granting adjustment of research cost and 50% of volume while applying CUP method - We have perused the decision of ITAT in the case of the assessee itself for assessment year 2003-04 [ 2023 (6) TMI 1357 - ITAT MUMBAI] wherein the ITAT held that adjustment of 40% will be allowed on marketing cost adjustments and research cost. Thus we direct TPO to give adjustment of 40% to the assessee while determining the arm s length of international transactions of brokerage and commission as directed in the finding of the ITAT referred supra, therefore these ground of appeal the assessee are partly allowed. Computing upward adjustment by considering addition instead of rectified amount - HELD THAT:- The assessee submitted that TPO had suo moto rectified the addition vide Rectification order therefore, we restore this issue to the file of the assessing officer for giving effect to the claim of the assessee after verific ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eth Rani ORDER Per Amarjit Singh (AM): All these 5 appeals filed by the assessee are pertained to different assessment years directed against the different order of the assessing officer based on the direction of DRP. Since, common issue on identical facts are involved in these different appeals of the assessee, therefore, for the sake of convenience all these appeals are adjudicated together by taking ITA No. 340/Mum/2019 as lead case and its finding will be applied to the other appeal wherever it is applicable. ITA No. 340/Mum/2019 Ground 1: Adjustment to the Arm's Length Price (ALP) of the broking commission earned by the Appellant 1. On the facts and circumstances of the case, the learned AO, based on the directions of the Honourable DRP, erred in making an upward adjustment of Rs. 19,77,31,456 in determining the ALP of the international transaction pertaining to provision of equity broking services in the clearing house (CH) and delivery versus payment (DVP) segment, to the Associated Enterprises (AEs) by the Appellant. 2. On the facts and circumstances of the case, the learned AO, based on the directions of the Honourable DRP, erre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 54 of the Act. Ground 2. Disallowance of net loss on account of error trade transactions 1. On the facts and circumstances of the case, the learned AO, based on the directions of Honourable DRP, erred in disallowing Rs. 28,09,603 being net loss on account of error trade transactions. 2. On the facts and circumstances of the case, the learned AO, based on the directions of the Hon'ble DRP erred on the following grounds 2.1 In not considering and appreciating the fact that during the course of assessment proceedings. the Assessee had furnished internal emails in its pure/ original form in which it was retrieved without any forgery/ alterations which constitutes genuine evidence and are adequate to substantiate/ corroborate the genuineness of the error trades transactions undertaken by the 2.2 In not appreciating the fact that the loss arising on account of error trades is purely incidental to rendering broking services business and thereby, deductible as business loss under section 28 of the Act 2.3 in stating that the assessee failed to produce relevant documents like contract notes in respect of error trades. Ground 3: Disallowance u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nge of India Delhi. The assessee is also registered as a merchant banker with SEBI. During the year under consideration the assessee filed return of income on 14.11.2014 declaring total income of Rs. 313,92,38,170/-. The case was subject to scrutiny assessment and a notice u/s 143(2) of the Act was issued on 31.08.2015. 3. During the course of assessment on perusal of Form 3CEB filed by the assessee, the assessing officer noticed that assessee had shown international transactions aggregating to Rs. 146,78,92,542/- with associates enterprises. Therefore, case was referred to TPO for determination of Arm s Length Price in respect of aforesaid international transactions with associate enterprises. 4. The TPO vide order u/s 92CA(3) of the Act dated 31.10.2017 recommended an adjustment of Rs. 19,77,31,456/- on account of the computation of the arm s length price (ALP of brokerage received on clearing house trades and Delivery Versus Payment trades executed for the associated enterprises in respect of the international transactions. The assessing officer has passed draft assessment order u/s 143(3) r.w.s 144C of the Act on 29.12.2017 and proposed adjustment of Arm s Length price as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... carried out is compared to the price obtained in comparable uncontrolled transactions. The TPO has relied on the decision in the case of J.P Morgan India Pvt. Ltd. for assessment year 2002-03 vide ITA No. 670/Mum/2006 dated 12.02.2014 wherein it has upheld the rejection of TNMM method and CUP has been accepted as most appropriate method for the purpose of benchmarking. 14. Before the TPO the assessee submitted that arithmetic mean of commission earned by the assessee from all clients combined should be considered. The TPO has not agreed with the submission of the assessee for considering the arithmetic mean of all clients on the ground that geographical differences plays an important role in the determination of arm s length price. 15. The DRP has rejected the objection filed by the assessee holding that geographical location is a very important factor as envisaged in Rule 10B(2)(d) and in the various judicial orders as cited by the TPO. 16. During the course of appellate proceedings before us at the outset the ld. Counsel submitted that ITAT Mumbai in the case of the assessee itself has accepted the stand of the assessee to consider the brokerage rate of all Non-AEs for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arables and concluded that its aforesaid transaction is at arm s length. The TPO vide order dated 20/10/2009 passed under section 92CA (3) of the Act did not agree with the benchmarking analysis conducted by the assessee and following the approach adopted in the assessment year 2005 06 considered internal Comparable Uncontrolled Price ( CUP ) method as the most appropriate method since the assessee was having similar transactions with third parties and data was available. The TPO further found that the commission earned from the associated enterprises is less than the commission earned from independent parties. Accordingly, the TPO made a total adjustment of Rs. 22,99,91,344, in respect of transaction pertaining to broking services after making an adjustment on account of marketing to an extent of 0.0313%. The learned DRP vide its directions issued under section 144C (5) of the Act rejected the objections filed by the assessee. Being aggrieved, the assessee is in appeal before us. 8. During the hearing, the learned Authorised Representative ( learned AR ) submitted that for benchmarking the transactions by application of CUP, an adjustment of 40% has been granted by the coord ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tment to the prices which could materially affect the price in the open market. 022. Further guidelines (2022) at paragraph number 2.17 also suggest that in considering whether controlled and uncontrolled transaction is comparable, regard should be held to the effect on price of broader business functions other than just product comparability. Where the differences exist between the controlled and uncontrolled transaction is on between the enterprises undertaking those transactions, it may be difficult to determine reasonably accurate adjustment to eliminate the effect on price. However such difficulties should in all fairness be adjusted reasonably but that should not preclude the application of cup method. In the present case for earlier years the learned and CIT - A has granted adjustment to the extent of 40%, which is been upheld by the coordinate benches in case of the assessee for earlier years, we also direct the learned assessing officer/transfer pricing officer to adjust and grant benefit of 40% discount to the assessee. 11. The learned DR could not show us any reason to deviate from the aforesaid decision and no change in facts and law was alleged in the relev ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ces in the services provided by the assessee to associate enterprises and non-enterprises, therefore the same were not comparable. Before the TPO alternatively the assessee had also submitted that if CUP method is applied then the assessee should be given the following adjustment: i. Marketing Cost ii. Research support iii. Volume However, the TPO has rejected the contention of the assessee as stated above. 19. During the course of appellate proceeding before us the ld. Counsel submitted that the ITAT in the case of the assessee while adjudicating the appeal of the assessee in various assessment years from A.Y. 2002-03 to A.Y. 2011-12 has allowed the assessee s ground by allowing total adjustment to the extent of 40% of such cost. 20. Heard both the sides and perused the material on record. With the assistance of ld. Representative we have perused the decision of ITAT in the case of the assessee itself for assessment year 2003-04 vide ITA No. 1235/Mum/2014 dated 30.06.2023 wherein the ITAT in the case of the assessee itself after following the decision of ITAT, Mumbai for assessment year 2005-06 wherein held that adjustment of 40% will be allowed on marketing cost ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... under section 144C (5) of the Act rejected the objections filed by the assessee. Being aggrieved, the assessee is in appeal before us. 8. During the hearing, the learned Authorised Representative ( learned AR ) submitted that for benchmarking the transactions by application of CUP, an adjustment of 40% has been granted by the coordinate bench of the Tribunal in assessee s own case for the preceding year be also allowed in the year under consideration. 9. On the contrary, the learned Departmental Representative ( learned DR ) vehemently relied upon the orders passed by the lower parties. 10. We have considered the submissions and perused the material available on record. We find that the coordinate bench of the Tribunal in assessee s own case in Morgan Stanley India Company Pvt. Ltd. vs Addl. CIT, in ITA No. 2206 and 2320/Mum./2011, vide order dated 22/07/2022, for the assessment year 2005 06, following the judicial precedents in assessee s own case, observed as under: 020. We have carefully considered the rival contentions and perused the orders of the lower authorities. Since, the issue has already been decided by the co-ordinate Bench in assessee's o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... CIT - A has granted adjustment to the extent of 40%, which is been upheld by the coordinate benches in case of the assessee for earlier years, we also direct the learned assessing officer/transfer pricing officer to adjust and grant benefit of 40% discount to the assessee. 11. The learned DR could not show us any reason to deviate from the aforesaid decision and no change in facts and law was alleged in the relevant assessment year. Thus, respectfully following the order passed by the coordinate bench of the Tribunal in the assessee s own case cited supra, we direct the AO/TPO to grant adjustment to the extent of 40% to the assessee while determining the arm s length price of international transaction of brokerage and commission. As a result, ground No. 1.3 raised in assessee s appeal is partly allowed. 12. This has also been followed by the Tribunal in A.Y.2005-06 also. Accordingly, on similar line we direct the TPO to give adjustment of 40% to the assessee while determining the arm s length price of international transaction of brokerage and commission, as against 25% given by the ld. TPO while considering both overseas and domestic independent clients while applying ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hich is incidental to the business of the assessee company. The ld. Counsel also referred page no. 642 to 649 of the paper book showing detail of error trade loss along with specific reasons. On the other hand, the ld. D.R supported the order of lower authorities. 24. Heard both the sides and perused the material on record. During the course of assessment in support of its claim of net loss of Rs. 28,09,603/- on account of error trades, the assessee had submitted the details like client name, reason for error trades, date of transactions, script name internal e-mail etc. The assessee also explained that error trades are the clerical other errors of the assessee in execution of the transactions for the clients. The error trades are basically trades generated by the clients, however, due to error inter alia in punching of the trade, etc. these trades are not executed as per the trading order of the clients. The error could be in the name of wrong punching of quantity, rate, security, system error and error in punching the type of order etc. During the course of appellate proceedings before us the assessee has also placed reliance on the decision of ITAT, Mumbai in the case of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... llowance u/s 14A and assessee was also direct to substantiate its claim as to why no disallowance should be made. The relevant operating part of the decision of the ITAT in the above referred decision is reproduced as under: 56. After considering the entire gamut of facts and the contentions raised by the assessee, we find that first of all assessee had itself made suomoto disallowance under Rule 8D and later on assessee claimed that no disallowance should be made. The ld. AO has rejected the explanation and has made the disallowance on the basis of working given by the assessee. Thus, when assessee itself has given the working for the disallowance, there was no reason for ld. AO to record his satisfaction. The assessee had to give reasons as to why disallowance is uncalled having regards to the books of accounts and then only ld. AO can record his satisfaction, whether to accept or reject the explanation given by the assessee. Here in this case, assessee at the very threshold has offered suo-moto disallowance which it rescinded from. Accordingly, the submissions made by the ld. Counsel cannot be accepted. However, interest disallowance is concerned, nothing has been brought o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... andis this ground of appeal of the assessee is also allowed for statistical purposes. 27. Ground No. 2: Disallowance of net loss incurred on error trading transactions: 28. Since the facts and the issue involved in this ground of appeal is similar to the facts and issue involved in ground no.2 of the appeal vide ITA No. 340/Mum/2019 as adjudicated supra in this order, therefore, applying the finding of ITA No. 340/Mum/2019 as mutatis mutandis this ground of appeal of the assessee is also allowed. ITA No. 1009/Mum/2021 (AY: 2016-17) Ground No. 1: Upward adjustment of Rs. 17,53,02,814/- in determining the ALP of the international transaction pertaining to provision of equity broking services in CH and DVP segment to AEs: 29. This generic ground was not pressed therefore, the same stand dismissed as not pressed Ground No. 1-2.1: Regarding applicability of transactions net margin method as the most appropriate method for determining the arm s length price for the broking commission earned on trades executed on behalf of the associate enterprises: 30. The assessee has not pressed this ground of appeal therefore, the same stand dismissed. Ground No. 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ound No. 1-2.2: (Assessee s Transactions with its AEs are at ALP) 32. The assesse has not pressed this ground therefore, the same stand dismissed. 33. Ground No. 2.3 2.4: (Considering brokerage rate of all Non- AEs for the comparability purposes). 34. Since the facts and the issue involved in this ground of appeal is similar to the facts and issue involved in ground no.2.3 24 of the appeal vide ITA No. 340/Mum/2019 as adjudicated supra in this order, therefore, applying the finding of ITA No. 340/Mum/2019 as mutatis mutandis this ground of appeal of the assessee is also allowed for statistical purposes. 35. Ground No. 2.5 2.6: No adjustment of marketing cost while applying CUP method not granting adjustment of research cost and 50% of volume while applying CUP method: 36. Since the facts and the issue involved in this ground of appeal is similar to the facts and issue involved in ground no.2.5 2.6 of the appeal vide ITA No. 340/Mum/2019 as adjudicated supra in this order, therefore, applying the finding of ITA No. 340/Mum/2019 as mutatis mutandis this ground of appeal of the assessee is also allowed for statistical purposes. ITA No. 2435/Mum/202 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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